Product Transfer – When is the time right?

A product transfer represents moving from one mortgage product to another, while staying with the same mortgage lender. Often called a rate switch or product switch, a product transfer is similar to a remortgage. The difference is a remortgage involves moving to a new mortgage product with a different mortgage lender. As you approach the end of your mortgage product, eg: before your fixed rate expires, securing a new mortgage product means making the choice between a product transfer and a remortgage.

Across our platforms, we often emphasise the importance of exploring remortgage options as opposed to going for the quick and easy product transfer. In the majority of cases, remortgaging to a new lender will be cheaper and, in some cases, it can literally save thousands! However, there are times when a product transfer is the most sensible option, and we’ll look into this more in today’s blog.

Typically, a product transfer requires no underwriting by the mortgage lender. This means they will not reassess your personal financial situation or credit history in offering you a new mortgage product. No documents are needed, no valuation is required and no credit searches are done. This results in a faster, more simple process. However, there are drawbacks and limitations…

Product transfers generally have less flexibility. You’re often unable to increase or decrease the mortgage balance or the mortgage term. If you’re wanting to reduce the mortgage balance, you’ll have to make an overpayment when the new mortgage starts. This could incur an early repayment charge (ERC), depending on the terms of the mortgage product. If you’re wanting to increase the mortgage and raise capital, you’ll have to make a separate application once the new mortgage has begun. Regarding the mortgage term, as part of a remortgage this can be adjusted to the shortest practical number of years which suits your monthly budget for mortgage payments. However, a product transfer often doesn’t allow this flexibility. You may be stuck on payments that are too high or unnecessarily low, depending on how mortgage rates and your circumstances have changed.

There are various circumstances when a product transfer is suitable. If you’ve had a change in personal finances is perhaps the most common. For example, if you can afford the monthly mortgage payments but a new lender wouldn’t allow you to borrow your current mortgage balance in remortgaging to them, a product transfer may be the appropriate solution. If you’re a portfolio landlord with multiple properties, a product transfer on some of your early purchases could avoid you having to pay increased portfolio rates which would be required if you were to remortgage. For those who’ve had missed payments on credit cards, loans, car finances or any other adverse credit history since taking out your current mortgage, a product transfer can avoid the otherwise required higher rates of interest charged by specialist adverse credit lenders. Finally, if your current mortgage lender happens to be the cheapest in the market, and you’re not looking to make any changes, sticking with them obviously makes financial sense.

Securing a new mortgage product, whether it be a product transfer or a remortgage, ensures you’re not falling onto a lender’s standard variable rate (SVR). Find yourself on SVR and your monthly mortgage payments will likely go through the roof… Speaking to a broker about the cheapest, most appropriate option available is always the best place to start – it may be a product transfer, it may be a remortgage. If you want to understand more about product transfers, remortgages or you have any mortgage or life insurance query, we’re here to help with free, professional advice.